An economic evaluation of Peru's liquefied natural gas export policy

Abstract

Peru's Camisea gas fields hold nearly 90% of the country's natural gas reserves. In the 1990s, the government had a policy to prioritize Camisea gas for domestic consumption. The revocation of this policy in the 2000s allowed private developers to export 40% of Camisea's proven reserves, equivalent to one third of Peru's total. This USD 3.9 billion liquefied natural gas (LNG) export project boasts the largest single foreign direct investment in Peru's history. A major component of the financing was granted by international financial institutions on economic grounds. While the project was expected to yield a substantial return to private investors, the export of one third of Peru's total proven natural gas reserves is not in line with its long-term interests. We undertake cost-benefit analyses for a series of scenarios, starting with the project's formative stage in the mid-2000s, and then in 2012, two years after it began its commercial operation. In all cases, Peru does not have sufficient reserves to warrant export, and the economic costs far exceed the benefits. This policy of LNG exports should not have been approved by the government, nor should the loans have been granted by international financial institutions to make it possible. (C) 2014 Elsevier Ltd. All rights reserved.